17-Jul-2018 • Personal Finance
In a sign of increasing austerity, only a third of Australians are intending to fritter away their tax refund on goods and services, according ME’s Tax Back Survey.
Meanwhile, 43% of Australians are expecting to save or invest and 27% are planning to pay off debts such as a home loan or credit card.
Around 19% of Australians will be directing it towards non-discretionary items such as bills and necessities while 15% are planning to splurge on discretionary items.
Of the Australians intending to splurge on discretionary items, the top three wish list items include ‘clothes and shoes’, ‘eating out, entertainment or recreation’ or ‘a holiday’.
Regardless of where Australians direct their refund, over half (57%) will file as soon as possible so they can ‘obtain their refund and use the money sooner’.
For many Australians, a tax refund is a significant financial boost. In the 2015-16 income year, 13.5 million individuals lodged an income tax return, according to the Australian Tax Office. Of these, 10.4 million received a refund worth an average of $2,574.
John Powell, ME General Manager of Deposits, said ME’s findings suggest many Australians are using their tax refund to get their financial house in order and improve their financial security.
“And rightly so, very few Australians factor in their tax refund into their household budget so it can make a big difference to your financial wellbeing when used wisely,” said Powell.
Powell explains four smart ways to put your tax return to best use.
Reduce debt stress
“Paying down debt is a great strategy as it reduces an ongoing cost, freeing up your monthly budget. Start with higher rate debt first, like credit cards.
“While a home loan has one of the lowest rates of any type of debt, it’s also a long-term affair and any lump sum you tip in today can knock years off the term and save you a bundle in interest along the way. Using an an offset account is a good way to do this.
Add to your super
“Using a tax refund to grow your retirement savings is also a smart move. Given the power of compounding returns the more you contribute now to super the more you’ll have for retirement.
Futureproof yourself
“A tax refund is a great opportunity to establish or bolster your emergency savings.
“Ideally you’d have reserves to cover at least six months of expenses. But even having a small stash of cash can help you weather life’s unexpected events or outlays.
“A tax refund can also be a good opportunity to maintain assets like your home, car or health, which can postpone bigger expenses in the future.
Save it
“If you just leave it in a transaction account, it's too easy to dip in, even unintentionally, for nonessential expenses. Consider locking it away in a separate savings account or term-deposit to help build savings for a goal or rainy day savings to cushion you from an unexpected financial emergency.”
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Editor notes: ME’s Tax Back survey was completed by 1,000 Australians in June 2018.